NEW YORK ( TheStreet ) -- Gold prices bounced Wednesday as the U.S. dollar tanked on news that 6 central banks, including the Federal Reserve, would lend more dollars at cheaper prices.

Gold for February delivery added $31.40 to close at $1,750.30 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,754.70 and as low as $1,704.30 an ounce while the spot price was up $32, according to Kitco's gold index.

Silver prices rose 85 cents to close at $32.80 an ounce while the U.S. dollar index was down 0.88% at $78.39.

The Federal Reserve, Bank of Japan, European Central Bank, Swiss National Bank, Bank of Canada and Bank of England have joined together to make more dollars available at cheaper prices in an effort to ease liquidity strains in financial markets.



The banks will lower the price on dollar liquidity swaps by 0.5% until February 2013, making it cheaper for other countries and banks to trade in their local currencies for dollars and fund their operations including loaning cash to consumers and businesses.

"The coordinated global action this morning is the right approach at this time and resets the money market system back away from a super-dollar centric condition," says Richard Hastings, macro and consumer strategist at Global Hunter Securities. Hastings argues that financial policy makers were looking at the financial system and worrying it was looking like 2008 when there was a flight into the U.S. money market system. "You don't want over strengthening of the dollar and don't want to hurt international trade."

The move by central banks dragged down the dollar, bolstered the euro and pushed gold prices higher. Hastings called the action by the central banks a type of quantitative easing and that it showed how terrified officials were that multi-national corporations would be unable to do business.

"Gold has a special talent for sniffing out these imbalances," says Hastings, "as long as this continues gold will continue to rally." Gold has snapped back to its recent up trend line at $1,725-$1,750 an ounce but Hastings warns that for gold to go much higher from here in the short term, new forms of "interest rate dysfunction" are needed.

Gold had been struggling to move higher in early trading after the People's Bank of China slashed the amount of money banks must hold in their reserves by 0.5% following an earlier move last week of cutting rural bank rates by the same amount. The government argued that the first round of cuts was automatic and not a sign of more monetary easing but today's move says otherwise.

Monetary easing is a big supporter of gold. The more money in the system runs the risk of higher inflation, prices in China were currently up 5.5% in October. When inflation rises faster than interest rates, cash in the bank is worth less and investors rush to gold as a safe place to store wealth.

If you liked this article you might like

This Is the Best Gold Stock to Own If You're Worried About North Korea's Bombs

What North Korea's Claim It Has Tested a Hydrogen Bomb Means for Your Portfolio

What North Korea Chaos Might Mean for Gold Prices

Randgold Resources Is No Overnight Sensation